Texas Instruments Inc.

Income statement: notes and sources

EBITDA is calculated as reported operating profit plus total depreciation and amortisation per the cash flow statement; TI does not report EBITDA. FY2021 and FY2022 D&A sourced from aggregated 10-K cash flow data (Macrotrends); FY2023–FY2025 from the FY2025 Form 10-K cash flow statement (depreciation plus amortisation of capitalised software).

Margins and growth

Revenue CAGR FY2021–FY2025: -0.9% per annum. Management's own three-year measure, disclosed in the 2026 proxy for compensation purposes, is a 2023–2025 revenue CAGR of -4.1%, described as below the median of its Semiconductor Peer group — with the caveat that peer growth includes acquisitions while TI's is entirely organic. Average operating profit margin over 2023–2025 was 37.0%, above the peer median.

Balance sheet: notes and sources

FY2023 total borrowings reflect the FY2023 Form 10-K debt lines; aggregator sources report higher totals (approximately $11.8 billion) because they include finance and operating lease obligations. TI reports no material acquisition-related intangible assets remaining; National Semiconductor intangibles were fully amortised by 2022.

Cash flow: notes and sources

TI's free cash flow definition is cash flow from operations less capital expenditures plus proceeds from CHIPS Act incentives.

Ratio analysis: notes and sources

ROIC computed as operating profit multiplied by (1 minus effective tax rate), divided by the sum of ending total borrowings and ending equity. DSO and days of inventory for FY2021, FY2022, FY2024 and FY2025 are as disclosed in the respective Forms 10-K. DPO computed as accounts payable divided by cost of revenue times 365.

Commentary on trends, inflections and drivers

Revenue. The five-year window contains a complete cycle. Revenue peaked at $20.03 billion in 2022 on the post-pandemic shortage, fell 12.5% in 2023 and a further 10.7% in 2024 as industrial and automotive customers worked down inventory, and recovered 13.0% in 2025. Momentum has accelerated sharply since: Q1 2026 revenue was $4.83 billion (+19% year over year), Q2 2026 was $5.46 billion (+23% year over year, +13% sequentially), and Q3 2026 guidance of $5.65–6.15 billion implies continued above-seasonal growth. Trailing-twelve-month revenue to 30 June 2026 was $19.45 billion, already above the 2022 peak on a run-rate basis.

Gross margin. The dominant driver is not price but factory loading and depreciation. Gross margin fell 1,180 basis points from 68.8% in 2022 to 57.0% in 2025. Two forces explain almost all of it: revenue declined 12% over the period while the fixed cost base expanded — depreciation rose from roughly $0.9 billion to $1.9 billion as RFAB2, LFAB and SM1 came onto the books. The 2025 decline from 58.1% to 57.0% occurred despite 13% revenue growth, because new-capacity costs outran the benefit of higher loadings. Trailing-twelve-month gross margin to June 2026 had recovered to 58.3%, and the incremental margin on the Q2 2026 revenue step-up was steep — this is the operating leverage the capex cycle was built to produce.

Operating expenses. R&D discipline is notable: absolute R&D rose every year, from $1,554 million to $2,083 million, a 7.6% CAGR, while revenue was flat. R&D intensity therefore rose from 8.5% to 11.8% of revenue — a deliberate counter-cyclical investment. SG&A grew far more slowly (2.8% CAGR), consistent with management's efficiency emphasis. Combined R&D and SG&A has been effectively held at $3.9 billion across both 2025 and the trailing twelve months to June 2026, meaning the entire Q2 2026 revenue increase dropped through the opex line.

Below the line. Other income and expense swung from $143 million in 2021 to $496 million in 2024 (interest earned on a large cash and short-term investment portfolio) and back to $230 million in 2025 as that portfolio was drawn down to fund capex. Simultaneously interest and debt expense tripled from $184 million to $543 million as TI issued $3.0 billion, $2.98 billion and $1.20 billion of long-term debt in 2023, 2024 and 2025 respectively. The net financing swing between 2024 and 2025 alone was a $301 million headwind to pre-tax income — a meaningful part of why net income grew only 4.2% on 13.0% revenue growth.

Tax. The effective rate has been remarkably stable in a narrow 12.0–12.9% band, well below the 21% U.S. statutory rate because of U.S. tax benefits including foreign-derived income provisions and R&D credits. The 2025 rate rose slightly to 12.4% as a result of the One Big Beautiful Bill Act; management expects both the effective rate and tax-related cash payments in 2026 and beyond to be lower than they would have been under prior law.

Balance sheet inflection. TI moved from a net cash position of $2.0 billion at the end of 2021 to net debt of $9.2 billion at the end of 2025 — a $11.2 billion swing. Every dollar of it is explained by the capex cycle: cumulative capital expenditure across the five years was $19.70 billion against cumulative operating cash flow of $35.76 billion and cumulative shareholder returns that management has held near or above free cash flow throughout. Total cash fell from $9.74 billion to $4.88 billion and total borrowings rose from $7.74 billion to $14.05 billion. Net debt to EBITDA of 1.14x remains conservative in absolute terms, but the direction has been consistently one way, and the pending Silicon Labs acquisition will push it higher.

Inventory. Days of inventory rose from 116 at end-2021 to a peak of 241 at end-2024 before falling to 222 at end-2025. This is deliberate — TI's stated strategy is to build ahead of demand in broad-based products with low obsolescence risk, precisely so that it can capture share when demand recovers. The strategy looks vindicated: TI entered the 2026 upturn with inventory and capacity in place while competitors were lead-time constrained.

Free cash flow. The clearest inflection in the dataset. Free cash flow collapsed from $6.29 billion (34.3% of revenue) in 2021 to $1.35 billion (7.7%) in 2023, recovered to $2.94 billion (16.6%) in 2025, and reached $6.53 billion on a trailing-twelve-month basis at 30 June 2026 with capex down to $3.31 billion. Management guidance of $2–3 billion of capex for 2026 implies a structural step-change in free cash flow conversion from here.

Dividend sustainability. Dividends paid of $4,999 million in 2025 exceeded free cash flow of $2,938 million — a payout of 170% of free cash flow, funded from the balance sheet. This was the third consecutive year in which the dividend exceeded free cash flow. It is the single most important stress point in the financial profile, and it resolves only if the 2026 free cash flow recovery is sustained. On trailing-twelve-month June 2026 numbers ($6.53 billion of free cash flow against roughly $5.2 billion of dividends), it has resolved.

Management guidance

For the third quarter of 2026, TI guides revenue of $5.65–6.15 billion and EPS of $2.23–2.57. Capital expenditure for full-year 2026 is guided to approximately $2–3 billion, against $4.55 billion in 2025 — the explicit signal that the six-year elevated capex cycle is ending. Management expects the effective tax rate and tax-related cash payments to be lower in 2026 and beyond than they would have been under prior tax law, and expects to continue benefiting from the CHIPS Act, including the 35% investment tax credit on qualifying investments placed in service after 31 December 2025 and up to $1.6 billion of direct funding. Beyond 2026, capital expenditure will be dependent on revenue and growth expectations, with management emphasising capacity modularity as the mechanism for scaling spend up or down. TI provides no multi-year revenue or margin targets.

Consensus expectations

The consensus rating across 36 analysts is Buy, with an average price target of $324.71 implying 25.6% upside from the 4 September 2026 close. Consensus embeds three-year revenue growth of 16.0% per annum and three-year EPS growth of 32.5% per annum — the latter implying substantial margin expansion, not merely volume recovery. On a forward P/E of 26.7x against a trailing 39.3x, the market is discounting roughly 47% earnings growth over the next twelve months.

Bull case

1. The capex cliff converts directly into free cash flow. Capital expenditure falls from $4,550 million in 2025 to a guided $2–3 billion in 2026 — a swing of $1.5–2.5 billion straight to free cash flow, on top of operating cash flow that has already risen 35% year over year to $8.67 billion on a trailing basis. Trailing-twelve-month free cash flow reached $6.53 billion at 30 June 2026, versus $1.35 billion in FY2023. If capex settles at $2.5 billion and operating cash flow reaches $9.5 billion on 2027 revenue, free cash flow of $7 billion covers the dividend with roughly $1.8 billion of surplus — restoring the capital return model that broke in 2023.

2. Operating leverage is only beginning to appear. TI held combined R&D and SG&A at $3.9 billion across both FY2025 and the trailing twelve months to June 2026, meaning every dollar of the Q2 2026 revenue increase flowed past opex. Gross margin has recovered from 57.0% (FY2025) to 58.3% trailing, and operating margin from 34.1% to 38.0%. Separately, Embedded Processing at an 11.3% operating margin against 38.5% four years ago represents roughly $500 million of latent operating profit that recovers mechanically as LFAB loads — management has stated this in the 10-K.

3. Data center is a genuinely new growth vector on an old asset base. Data center emerged as a separately reported market at 9% of revenue in 2025 and doubled year over year in Q2 2026. The economics are attractive: 48V rack power, multiphase core rails, eFuses and GaN stages are high-content, performance-differentiated analog sockets, not commodity catalogue parts. TI is monetising the AI build-out without having to win a logic or memory design.

Bear case

1. The valuation already prices the recovery. At 39.3x trailing earnings, 12.1x sales, 44.1x free cash flow and 25.5x EV/EBITDA, TI trades above its own five-year range and above the sales multiple its closest comparator commanded eight months ago — despite carrying a gross margin roughly 1,100 basis points below that comparator. Consensus requires 32.5% annual EPS growth for three years. The market's reaction to the Q2 2026 beat — an 11% decline over the following month — is evidence that good results are no longer sufficient.

2. Leverage is rising into an acquisition at the top of a cycle. Net debt has swung $11.2 billion in four years to $9.17 billion; total borrowings are $14.05 billion; interest expense has tripled to $543 million; and TI is about to add roughly $7.5 billion of cash consideration funded partly by new debt. Moody's has already moved to a negative outlook and estimates leverage reaching the upper 2x range — high for Aa3. TI is paying a 69% premium for Silicon Labs after fifteen years of near-total M&A abstinence, at a moment when its own equity currency and the target's sector are both richly valued. The $450 million synergy target depends on successfully migrating an acquired fabless portfolio into TI fabs, which is exactly the kind of integration risk TI's own risk factors flag.

3. The China exposure is asymmetric and unhedged. Approximately 50% of 2025 revenue shipped into China, roughly 2.5 times the 20% attributable to China-headquartered customers. TI's own risk factors name China's policy-driven domestic analog build-out as something that could prevent it from competing effectively, and identify emerging Asian competitors as a growing threat. Meanwhile China was TI's fastest-growing region in 2025 at +25.5% — meaning the growth that is currently supporting the recovery narrative is concentrated in the geography most vulnerable to policy shock. TI has no obvious hedge: its U.S. manufacturing advantage is worth little to a Chinese OEM being pushed toward domestic suppliers.

Catalysts and monitorables, next twelve months

Analyst verdict

Texas Instruments has spent six years running an experiment that most of its peers declined to run: borrowing against a pristine balance sheet to build owned, advanced, domestic analog capacity through the deepest inventory correction in a decade, while raising R&D every single year and refusing to cut the dividend. The cost of that experiment is fully visible in the numbers — 1,180 basis points of gross margin, an $11.2 billion swing from net cash to net debt, three consecutive years of paying dividends out of the balance sheet, and a three-year revenue CAGR of negative 4.1% that TI's own compensation committee concedes trailed its peers. Anyone who owned the stock through 2023–2025 paid for the option.

The evidence of 2026 is that the option is beginning to pay. Revenue grew 23% year over year in the June quarter with operating margin back to 38%, trailing free cash flow reached $6.53 billion against $1.35 billion in 2023, capex is guided down by roughly $2 billion, and the first price increases in years have gone through. The mechanical arithmetic from here is favourable: falling depreciation growth, an opex base held flat, an Embedded segment carrying half a billion dollars of suppressed operating profit that recovers as LFAB loads, a 35% investment tax credit on the newest assets, and a lower structural tax rate. Few large-cap franchises have this much identifiable, non-heroic earnings recovery sitting inside their own cost structure.

The problem is price and timing. At 39x trailing earnings and 44x free cash flow, with consensus requiring 32% annual EPS growth for three years, the market has already underwritten the recovery — and the shares' 11% decline after a substantial Q2 beat suggests the bar is now higher than the fundamentals. Layered on top is a $7.5 billion cash acquisition at a 69% premium, financed with new debt, from a management team with no recent integration track record, already sufficient to move Moody's to a negative outlook. And roughly half of revenue still ships into a country whose industrial policy TI names in its own risk factors as a threat to its ability to compete.

The judgement is therefore split between the asset and the security. The asset is close to unimpeachable: the strongest position in a fragmented, slow-moving, annuity-like market, with a structural cost advantage its competitors cannot replicate without spending what TI has just finished spending. The security requires the recovery to run further and faster than currently visible, with an acquisition executed cleanly and no adverse turn in U.S.–China trade. The next dividend decision and the pace of Embedded Processing margin recovery will tell more about the next three years than any guidance TI will issue.